Robbins & Myers 10-Q 2006 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended May 31, 2006

File Number0-288

Robbins & Myers, Inc.

(Exact name of registrant as specified in its charter)

Ohio	31-0424220
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
1400 Kettering Tower, Dayton, Ohio	45423
(Address of Principal executive offices)	(Zip Code)

Registrant’s telephone number including area code: (937) 222-2610

None
Former name, former address and former fiscal year if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YESþ NOo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filero Accelerated filerþ Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) YESo NOþ

Common shares, without par value, outstanding as of May 31, 2006: 14,804,215

TABLE OF CONTENTS

	Item 2 —Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
Part II—Other Information
	Item 6. Exhibits
SIGNATURES
INDEX TO EXHIBITS
EX-31.1 302 CEO Certifications
EX-31.2 320 CFO Certification
EX-32.1 906 CEO Certifications
EX-32.2 906 CFO Certifications

ROBBINS & MYERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands)

	May 31,			August 31,
	2006			2005
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	16,379		$	23,043
Accounts receivable		114,033			128,676
Inventories:
Finished products		32,571			35,538
Work in process		37,125			30,201
Raw materials		36,373			36,913
		106,069			102,652
Other current assets		7,143			7,121
Deferred taxes		10,499			10,216
Total Current Assets		254,123			271,708
Goodwill		268,968			309,281
Other Intangible Assets		13,481			14,927
Other Assets		14,085			13,807
Property, Plant and Equipment		277,439			274,439
Less accumulated depreciation		(149,252	)		(143,827	)
		128,187			130,612
TOTAL ASSETS	$	678,844		$	740,335
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	53,867		$	67,183
Accrued expenses		94,848			97,090
Current portion of long-term debt		3,233			8,616
Total Current Liabilities		151,948			172,889
Long-Term Debt—Less Current Portion		145,293			166,792
Deferred Taxes		1,743			3,721
Other Long-Term Liabilities		85,674			86,149
Minority Interest		11,762			9,939
Shareholders’ Equity
Common stock		113,066			110,281
Retained earnings		162,927			193,968
Accumulated other comprehensive loss (income)		6,431			(3,404	)
Total Shareholders’ Equity		282,424			300,845
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	678,844		$	740,335

See Notes to Consolidated Condensed Financial Statements

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ROBBINS & MYERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

	Three Months Ended					Nine Months Ended
	May 31,					May 31,
	2006			2005		2006			2005
				(restated)					(restated)
Net sales	$	153,243		$	157,584	$	442,199		$	435,669
Cost of sales		100,438			105,948		292,823			294,361
Gross profit		52,805			51,636		149,376			141,308
SG&A expenses		40,779			42,332		122,718			119,221
Amortization expense		625			669		1,766			1,873
Goodwill impairment charge		9,174			0		39,174			0
Other (income) expense		(3,947	)		944		(2,707	)		6,743
(Income) loss before interest and income taxes		6,174			7,691		(11,575	)		13,471
Interest expense		3,125			3,599		10,324			10,827
Income (loss) before income taxes and minority interest		3,049			4,092		(21,899	)		2,644
Income tax expense		2,846			3,405		5,365			2,200
Minority interest		278			464		1,343			1,041
Net (loss) income	$	(75	)	$	223	$	(28,607	)	$	(597	)
Net (loss) income per share:
Basic	$	(0.01	)	$	0.02	$	(1.94	)	$	(0.04	)
Diluted	$	(0.01	)	$	0.02	$	(1.94	)	$	(0.04	)
Dividends per share:
Declared	$	0.055		$	0.055	$	0.165		$	0.165
Paid	$	0.055		$	0.055	$	0.165		$	0.165

See Notes to Consolidated Condensed Financial Statements

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ROBBINS & MYERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)

	Nine Months Ended
	May 31,
	2006			2005
				(restated)
Operating Activities:
Net loss	$	(28,607	)	$	(597	)
Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities:
Depreciation		12,069			13,409
Amortization		1,766			1,873
Goodwill impairment charge		39,174			0
Gain on business dispositions		(7,523	)		0
Loss on sale of buildings		276			23
Stock compensation expense		1,067			173
Changes in operating assets and liabilities:
Accounts receivable		15,248			6,901
Inventories		(7,962	)		(8,964	)
Accounts payable		(14,090	)		(5,026	)
Accrued expenses		(6,426	)		(4,327	)
Other		553			(1,032	)
Net Cash and Cash Equivalents Provided by Operating Activities		5,545			2,433
Investing Activities:
Capital expenditures, net of nominal disposals		(11,005	)		(14,586	)
Proceeds from business dispositions		26,900			0
Proceeds from sale of buildings		933			8,130
Net Cash and Cash Equivalents Provided (Used) by Investing Activities		16,828			(6,456	)
Financing Activities:
Proceeds from debt borrowings		34,538			68,370
Payments of long-term debt		(62,425	)		(66,210	)
Amended credit agreement fees		(528	)		(262	)
Proceeds from sale of common stock		1,810			2,615
Dividends paid		(2,434	)		(2,407	)
Net Cash and Cash Equivalents (Used) Provided by Financing Activities		(29,037	)		2,106
Decrease in Cash and Cash Equivalents		(6,664	)		(1,917	)
Cash and Cash Equivalents at Beginning of Period		23,043			8,640
Cash and Cash Equivalents at End of Period	$	16,379		$	6,723

See Notes to Consolidated Condensed Financial Statements

4

ROBBINS & MYERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
May 31, 2006
(Unaudited)

NOTE 1 – Preparation of Financial Statements

In the opinion of management, the accompanying unaudited consolidated condensed financial statements of Robbins & Myers, Inc. and subsidiaries (“we” “our”) contain all adjustments, consisting of normally recurring items, necessary to present fairly our financial condition as of May 31, 2006 and August 31, 2005, and the results of our operations for the three and nine months periods ended May 31, 2006 and May 31, 2005 and cash flows for the nine month periods ended May 31, 2006 and 2005. All intercompany transactions have been eliminated. Certain amounts in the prior period financial statements have been reclassified to conform to the current year presentation. Beginning in the first quarter of fiscal 2006, we are reporting realigned segments. The amounts presented for fiscal 2005 reflect this realignment.

While we believe that the disclosures are adequately presented, it is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and notes included in our most recent Annual Report on Form 10-K for the fiscal year ended August 31, 2005. A summary of our significant accounting policies is presented therein on page 36 of that Form 10-K. Other than the adoption of FASB Statement 123(R),Share Based Payments, which is described in Note 12, there have been no material changes in the accounting policies followed by us during fiscal year 2006.

NOTE 2 – Restatement of Prior Financial Information

We have restated our historical Consolidated Financial Statements for the cumulative impact of errors in income tax expense. For more information with respect to the restatement, see “Note 2” to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for fiscal 2005. We did not amend our previously filed Quarterly Reports on Form 10-Q for the restatement. Therefore, the financial statements and related financial information contained in such reports should no longer be relied upon.

The following table presents the effects of the restatement on the Consolidated Condensed Statement of Operations of the previously reported quarters of fiscal 2005 (in thousands, except per share amounts):

	Fiscal 2005
	First			Second			Third
	Quarter			Quarter			Quarter
Decrease (Increase) in income tax expense from adjustments	$	1,674		($	1,004	)	($	1,891	)
Net (loss) income as previously reported		(2,545	)		1,055			2,114
Net (loss) income as restated	($	871	)	$	51		$	223
Net (loss) income per share as previously reported:
Basic	($	0.18	)	$	0.07		$	0.14
Diluted	($	0.18	)	$	0.07		$	0.14
Net (loss) income per share as restated:
Basic	($	0.06	)	$	0.00		$	0.02
Diluted	($	0.06	)	$	0.00		$	0.02

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NOTE 3 – Business Dispositions

On March 31, 2006, we completed the sale of two of our Romaco business units – Hapa and Laetus – for approximately $31,000,000. We received cash proceeds of $26,900,000 with the remaining purchase price paid into an escrow account. The amount paid into escrow serves as collateral for claims by the purchaser under the terms of the Asset and Share Purchase Agreement. We have not recognized the cash in escrow as an asset as of May 31, 2006. This will be recognized as an asset and additional gain, if any, when the final payment from escrow is determinable. The purchase price is subject to a final adjustment to reflect the net assets on March 31, 2006. Hapa designs, manufactures and sells printing systems used in the packaging of pharmaceutical products. Laetus designs, manufactures and sells packaging security systems, including bar code reading and vision inspection systems, for use in the pharmaceutical and cosmetic industries. Hapa and Laetus had combined sales of approximately $42,000,000 for our fiscal year ended August 31, 2005. The sale generated a pre-tax gain of $7,523,000 ($6,396,000 after-tax gain, or $0.43 per diluted share). The cash proceeds were used to pay off the $12,332,000 balance of our 10.00% Subordinated Notes and reduce our revolving credit loan.

NOTE 4 – Statement of Operations Information

Beginning with the first quarter of fiscal 2006, we reported realigned segments. The new segment structure is a result of a significant reorganization of management, operations and reporting that occurred during the first quarter of fiscal 2006. The Fluid Management segment is comprised of the R&M Energy Systems, Moyno and Tarby product lines. The Process Solutions segment is comprised of the Pfaudler, Tycon Technoglass, Chemineer and Edlon product lines. The Romaco segment includes the Hapa and Laetus (prior to their sale) and FrymaKoruma, Noack, Siebler, Macofar, Promatic, Unipac, IPM, Zanchetta and Bosspak product lines.

As a result of the segment realignment, the goodwill recorded as of August 31, 2005 was allocated to the aforementioned product lines based on their relative fair value in accordance with Statement of Financial Accounting Standard No. 142 “Goodwill and Other Intangible Assets” (“FAS 142”). The aggregate goodwill for each new segment is the sum of the reallocated goodwill for the product lines comprising the segment. In addition, during the first quarter and subsequent to the end of the first quarter, discussions about the sale of Romaco progressed and provided additional information regarding the fair value of Romaco. After considering the fair value of the Romaco segment, management determined there was an indicator of goodwill impairment under the rules of FAS 142. Management estimated the fair value of the Romaco segment using current prices that the Company may receive in the potential disposition of all or parts of Romaco. Based on these estimates, management estimated that goodwill in the Romaco segment should be written down by $30,000,000. This charge was included in our first quarter earnings. A formal appraisal was completed in the third quarter to determine the final goodwill write-down. The results of the appraisal determined that goodwill should be written down by an additional $9,174,000. This charge is included in our third quarter earnings.

Unless otherwise noted, the recorded costs mentioned below in this note were included on the “other” expense line of our Consolidated Condensed Statement of Operations in the period indicated.

During fiscal 2006 and 2005, we incurred costs related to a restructuring program of our Process Solutions and Romaco segments. The restructuring plan was initiated to improve the profitability of these segments in light of their current worldwide economic conditions. The restructuring plan included the following:

• Plant closures (one of two Reactor Systems facilities in Italy, a Reactor Systems facility in Mexico and the Unipac facility of Romaco in Italy).

• Headcount reductions to support the Reactor Systems business reorganization and to bring the personnel costs in line with the current level of business.

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• Headcount reductions at Romaco with the Unipac integration into the Macofar facility, reorganization of our distribution network and removal of duplicate administrative costs at other locations.

     The fiscal 2005 restructuring activities were as follows:

• The Unipac facility and the Reactor Systems facility in Italy were sold.

• The Reactor Systems headcount was reduced by 134.

• The Romaco headcount was reduced by 108.

The restructuring of our Romaco and Reactor Systems product lines is continuing in fiscal 2006 as we continue to consolidate facilities. The consolidation of production facilities will reduce excess production capacity and redundant operating and administrative costs. We expect the fiscal 2006 restructuring costs to be approximately $8,000,000. These costs primarily relate to severance, equipment relocation and costs to exit the facilities. In addition, with the sale of the Hapa and Laetus businesses completed, we are reviewing the most cost effective methods to deliver our Romaco products to market. This review will result in additional personnel termination and facility closure costs of approximately $6,000,000 to $7,000,000 over the next six months.

As a result of the restructuring activities, we recorded costs in fiscal 2005 totaling $3,623,000 in the Process Solutions segment and $4,279,000 in the Romaco segment. The costs in fiscal 2005 were comprised of the following:

• $5,677,000 of termination benefits related to the aforementioned headcount reductions.

• $1,130,000 to write-down inventory and $355,000 to write-off intangibles related to discontinued product lines. The inventory charge is included in cost of sales.

• $332,000 to write-down to estimated net realizable value the facilities that we exited.

• $408,000 to write down equipment to fair value, relocate equipment, relocate employees and other costs.

In the first nine months of fiscal 2005, the costs recorded in the Process Solutions segment were $4,177,000 and the costs recorded in the Romaco segment were $3,597,000. The recorded costs in the first nine months were comprised of the following:

• $5,571,000 of termination benefits related to the aforementioned headcount reductions.

• $1,031,000 to write-down inventory and $403,000 to write-off intangibles related to a discontinued product line. The inventory charge is included in cost of sales.

• $323,000 to write-down to estimated net realizable value the Reactor Systems facility in Italy that we exited.

• $263,000 for equipment relocation and to write down equipment to fair value.

• $146,000 gain on the sale of the Unipac facility.

• $329,000 of costs to prepare facilities for sale, relocate employees and other costs.

In the first nine months of fiscal 2006, the costs recorded in the Process Solutions segment were $4,638,000

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and the costs recorded in the Romaco segment were $1,963,000. The recorded costs in the first nine months were comprised of the following:

• $3,672,000 of termination benefits related to headcount reductions primarily in Germany where we combined two operations into a single facility and removed redundant costs, and Italy where we have downsized our manufacturing operations and shifted production to other facilities.

• $370,000 to write-off inventory related to a discontinued product line. The inventory charge is included in cost of sales.

• $2,559,000 for equipment relocation, costs to exit facilities, and losses related to business and facility dispositions.

Offsetting the restructuring costs was a gain on the disposition of the Hapa and Laetus businesses of Romaco of $7,523,000. See Business Disposition note for further information.

Following is a progression of the liability for termination benefits:

	(In thousands)
Liability as of August 31, 2005	$	1,074
Payments made		(2,879	)
Costs incurred		3,672
Change in estimate		0
Liability at May 31, 2006	$	1,867

The Mexico facility that was part of the restructuring program in fiscal 2005 is owned by us and will be sold. We expect that facility sale to generate approximately $6,000,000 of additional pre-tax cash proceeds, which exceeds the recorded book value of this facility by approximately $5,900,000. We have negotiated a contract for the sale of the Mexico facility and expect title to the property to transfer to the buyer in August 2006. We anticipate receiving cash proceeds of $1,500,000 before August 31, 2006 with the balance of the proceeds to be received by December 2006.

During the fourth quarter of fiscal 2005, we also sold the inventory and equipment related to our lined-pipe and fittings product line of our Process Solutions segment to Crane, Inc. In addition, in our second quarter, we sold another underutilized facility of our Process Solutions segment. The cash proceeds received from these asset sales were $9,732,000. The loss recognized in 2005 as a result of these asset sales was $2,114,000. During the third quarter of fiscal 2006, the land and buildings in Charleston, West Virginia were sold for $1,000,000. The loss on the disposition was $1,684,000.

We incurred additional costs of $345,000 in the first quarter of fiscal 2006 related to the sale of the lined-pipe and fittings product line. These costs were personnel and facility related costs that we incurred in connection with our obligation to provide lined-pipe and fittings manufacturing operations to Crane, Inc. during the first quarter.

In the second quarter of fiscal 2006 we recorded a $1,800,000 gain (before minority interest of 24%) on the sale of land and buildings in China. We have signed a contract transferring title of the land and buildings to the buyer. The cash proceeds of $3,300,000 from the sale are expected to be received within six to nine months. We have moved our production operations to a newly constructed facility. We also recorded a liability of $385,000 for costs expected to be incurred when we exit a leased facility in the United Kingdom.

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NOTE 5 – Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the nine month period ended May 31, 2006, by operating segment, are as follows:

	Process		Fluid
	Solutions		Mgmt.		Romaco
	Segment		Segment		Segment			Total
			(In thousands)
Balance as of September 1, 2005	$	141,970	$	104,653	$	62,658		$	309,281
Goodwill reduction from utilizing purchased tax loss carryforwards		0		0		(820	)		(820	)
Goodwill reduction due to business dispositions		0		0		(7,166	)		(7,166	)
Goodwill written off during the period		0		0		(39,174	)		(39,174	)
Translation adjustments and other		1,309		1,079		4,459			6,847
Balance as of May 31, 2006	$	143,279	$	105,732	$	19,957		$	268,968

In fiscal 2006, we were able to utilize certain net operating loss (NOL) carryforwards that existed at the purchase date of Romaco. No value was allocated to these NOL carryforwards in the opening balance sheet of Romaco, therefore the utilization of these NOL carryforwards is recorded as a reduction to goodwill. The reduction of goodwill was $820,000 in fiscal 2006.

Information regarding our other intangible assets is as follows:

	As of May 31, 2006						As of August 31, 2005
	Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Net		Amount		Amortization		Net
	(In thousands)
Patents and Trademarks	$	9,210	$	6,306	$	2,904	$	9,678	$	6,027	$	3,651
Non-compete Agreements		8,800		6,054		2,746		8,800		5,739		3,061
Financing Costs		9,359		7,320		2,039		8,855		6,495		2,360
Pension Intangible		5,148		0		5,148		5,148		0		5,148
Other		5,939		5,295		644		5,939		5,232		707
Total	$	38,456	$	24,975	$	13,481	$	38,420	$	23,493	$	14,927

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NOTE 6 – Net Income (Loss) per Share

	Three Months Ended					Nine months Ended
	May 31,					May 31,
	2006			2005		2006			2005
	(In thousands, except per share amounts)
				(restated)					(restated)
Numerator:
Basic:
Net (loss) income	$	(75	)	$	223	$	(28,607	)	$	(597	)
Effect of dilutive securities:
Convertible debt interest		480			480		1,440			1,440
Income (Loss) attributable to diluted shares	$	405		$	703	$	(27,167	)	$	843
Denominator:
Basic:
Weighted average shares		14,784			14,650		14,743			14,590
Effect of dilutive securities:
Convertible debt		1,778			1,778		1,778			1,778
Dilutive options		30			44		20			45
Diluted shares		16,592			16,472		16,541			16,413
Basic net (loss) income per share	$	(0.01	)	$	0.02	$	(1.94	)	$	(0.04	)
Diluted net (loss) income per share	$	(0.01	)	$	0.02	$	(1.94	)	$	(0.04	)

NOTE 7 – Product Warranties

Warranty obligations are contingent upon product failure rates, material required for the repairs and service delivery costs. We estimate the warranty accrual based on specific product failures that are known to us plus an additional amount based on the historical relationship of warranty claims to sales.

Changes in our product warranty liability during the period are as follows:

	Nine months Ended
	May 31, 2006
	(In thousands)
Balance at beginning of the period	$	9,176
Warranties issued during the period		1,689
Settlements made during the period		(1,595	)
Impact of business dispositions		(970	)
Translation adjustment impact		142
Balance at end of the period	$	8,442

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NOTE 8 — Long-Term Debt

	May 31, 2006
	(In thousands)
Senior debt:
Revolving credit loan	$	0
Senior notes		100,000
Other		8,526
8.00% convertible subordinated notes		40,000
Total debt		148,526
Less current portion		3,233
Long-term debt	$	145,293

On December 23, 2005, we amended our Bank Credit Agreement (“Agreement”). Refer to our Annual Report on Form 10-K for the year ended August 31, 2005 for a description of the former Agreement. The Agreement provides that we may borrow on a revolving credit basis up to a maximum of $50,000,000. All outstanding amounts under the Agreement are due and payable on November 30, 2007. Interest is variable based upon formulas tied to LIBOR or prime, at our option, and is payable at least quarterly. Indebtedness under the Agreement is secured by accounts receivable, inventory, equipment and fixtures of our U.S. subsidiaries, the pledge of the stock of our U.S. subsidiaries and the pledge of the stock of certain non-U.S. subsidiaries. Under this Agreement and other lines of credit, we have $50,000,000 of unused borrowing capacity. However, due to our outstanding standby letters of credit, we could only incur additional indebtedness of $31,106,000 at May 31, 2006. We have $18,894,000 of standby letters of credit outstanding at May 31, 2006. These standby letters of credit are used as security for advance payments received from customers and future payments to our vendors.

We have $100,000,000 of Senior Notes (“Senior Notes”) issued in two series. Series A in the principal amount of $70,000,000 has an interest rate of 6.76% and is due May 1, 2008, and Series B in the principal amount of $30,000,000 has an interest rate of 6.84% and is due May 1, 2010. Interest is payable semi-annually on May 1 and November 1. Security for the Senior Notes is shared with our Bank Credit Agreement noted above.

The above agreements have certain restrictive covenants including limitations on cash dividends, treasury stock purchases and capital expenditures and thresholds for interest coverage and leverage ratios. The amount of cash dividends and treasury stock purchases, other than in relation to stock option exercises, we may incur in each fiscal year is restricted to the greater of $3,500,000 or 50% of our consolidated net income for the immediately preceding fiscal year, plus a portion of any unused amounts from the preceding fiscal year.

We have $40,000,000 of 8.00% Convertible Subordinated Notes Due 2008 (“8.00% Convertible Subordinated Notes”). The 8.00% Convertible Subordinated Notes are due on January 31, 2008, bear interest at 8.00%, payable semi-annually on March 1 and September 1 and are convertible into common stock at a rate of $22.50 per share. Holders may convert at any time until maturity. The 8.00% Convertible Subordinated Notes are currently redeemable at our option at a redemption price equal to 100% of the principal amount. On May 19, 2006, we announced our intention to redeem $10,000,000 of the Convertible Subordinated Notes. The redemption date is July 14, 2006, unless converted prior thereto.

Our other debt primarily consists of unsecured non-U.S. bank lines of credit with interest rates ranging from 4.00% to 8.00%.

We have entered into an interest rate swap agreement. The interest rate swap agreement utilized by us effectively modifies our exposure to interest rate risk by converting our fixed rate debt to floating rate debt. This agreement involves the receipt of fixed rate amounts in exchange for floating rate interest payments

11

over the life of the agreement without an exchange of underlying principal amounts. The mark-to-market values of both the fair value hedging instrument and the underlying debt obligation were equal and recorded as offsetting gains and losses in current period earnings. The fair value hedge qualifies for treatment under the short-cut method of measuring effectiveness. As a result, there is no impact on earnings due to hedge ineffectiveness. The interest rate swap agreement totals $30,000,000, expires in 2008 and allows us to receive an interest rate of 6.76% and pay an interest rate based on LIBOR.

NOTE 9 — Retirement Benefits

Retirement and other postretirement plan costs are as follows:

Pension Benefits

	Three Months Ended						Nine months Ended
	May 31,						May 31,
	2006			2005			2006			2005
	(In thousands)						(In thousands)
Service cost	$	588		$	1,058		$	2,363		$	3,174
Interest cost		1,854			2,276			5,563			6,828
Expected return on plan assets		(1,415	)		(1,819	)		(4,244	)		(5,457	)
Amortization of prior service cost		157			130			471			390
Amortization of unrecognized losses		322			285			966			855
Net periodic benefit cost	$	1,506		$	1,930		$	5,119		$	5,790

Other Postretirement Benefits

	Three Months Ended				Nine months Ended
	May 31,				May 31,
	2006		2005		2006		2005
	(In thousands)				(In thousands)
Service cost	$	87	$	83	$	260	$	249
Interest cost		457		435		1,370		1,305
Amortization of prior service cost		55		53		165		159
Amortization of unrecognized losses		189		180		567		540
Net periodic benefit cost	$	788	$	751	$	2,362	$	2,253

NOTE 10 — Income Taxes

The tax expense for the nine month period ended May 31, 2006, was $5,365,000 on a pretax loss of $21,899,000. This unusual relationship exists because the goodwill impairment charge of $39,174,000 is not deductible for tax purposes. Without the goodwill impairment charge, the pretax income was $17,275,000 for the nine month period ended May 31, 2006. The effective tax rate on this pretax income was 31.1%. The tax rate for the comparable nine month period of fiscal 2005 was 83.2%. The effective tax rate is lower than prior year due to the tax effect of the gain generated on the sale of our Hapa and Laetus businesses. The pre-tax gain on this transaction was $7,523,000 and the effective tax rate was 15.0%.

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NOTE 11 — Comprehensive Income

	Three Months Ended						Nine months Ended
	May 31,						May 31,
	2006			2005			2006			2005
	(In thousands)						(In thousands)
				(restated)						(restated)
Net (loss) income	$	(75	)	$	223		$	(28,607	)	$	(597	)
Other comprehensive income (loss):
Fair value of interest rate swap		(81	)		0			(426	)		0
Foreign currency translation		13,705			(6,949	)		10,261			6,318
Comprehensive income (loss)	$	13,549		$	(6,726	)	$	(18,772	)	$	5,721

NOTE 12 — New Accounting Pronouncement

We sponsor a long-term incentive stock plan to provide for the granting of stock-based compensation to certain officers and other key employees. In addition, we sponsor stock option and stock compensation plans for non-employee directors. Under the plans, the stock option price per share may not be less than the fair market value per share as of the date of grant. For officers and other key employees, outstanding grants become exercisable over a three-year period, while options for non-employee directors are immediately exercisable. Prior to September 1, 2005, we accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No. 123,Accounting for Stock-Based Compensation. No stock-based employee compensation cost was recognized in the Consolidated Statement of Operations for years ended August 31, 2005 and 2004, or in the three and nine month periods ended May 31, 2005, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective September 1, 2005, we adopted the fair value recognition provisions of FASB Statement No. 123(R),Share-Based Payments, using the modified-prospective-transition method. Under that transition method, compensation cost recognized in the first nine months of fiscal 2006 included: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of September 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to September 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Results for the prior period have not been restated.

As a result of adopting Statement 123(R) on September 1, 2005, our income before income taxes and net income for the quarter ended May 31, 2006 are $195,000 and $123,000 lower, respectively, than if we had continued to account for share-based compensation under APB Opinion No. 25. Basic and diluted loss per share for the quarter ended May 31, 2006 is $0.01 higher than if we had not adopted Statement 123(R). Our loss before income taxes and net loss for the nine month period ended May 31, 2006 are $660,000 and $416,000 higher, respectively, than if we had continued to account for share-based compensation under APB Opinion No. 25. Basic and diluted loss per share for the nine month period ended May 31, 2006 is $0.03 higher than if we had not adopted Statement 123(R).

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The following table illustrates the effect on net income and net income per share if we had applied the fair value recognition provisions of Statement 123 to options granted under our stock option plans in all periods presented. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes-Merton option-pricing formula and amortized to expense over the options’ vesting periods.

	Three Months			Nine months			Twelve Months
	Ended			Ended			Ended
	May 31,						August 31,
	2005			2005			2005			2004
	(In thousands, except per share amounts)
	(restated)			(restated)						(restated)
Net income (loss), as reported	$	223		$	(597	)	$	(262	)	$	11,648
Deduct: Total Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		262			785			1,005			1,089
Pro forma net (loss) income	$	(39	)	$	(1,382	)	$	(1,267	)	$	10,559
Income (Loss) per share:
Basic—as reported	$	0.02		$	(0.04	)	$	(0.02	)	$	0.80
Basic—pro forma	$	0.00		$	(0.09	)	$	(0.09	)	$	0.73
Diluted—as reported	$	0.02		$	(0.04	)	$	(0.02	)	$	0.80
Diluted—pro forma	$	0.00		$	(0.09	)	$	(0.09	)	$	0.73

NOTE 13 — Business Segments

Beginning with the first quarter of fiscal 2006, we reported realigned segments (see Note 4) — Statement of Operations Information). The amounts presented for fiscal 2005 reflect this realignment. The following tables present information about our reportable business segments.

	Three Months Ended						Nine months Ended
	May 31,						May 31,
	2006			2005			2006			2005
	(In thousands)
Unaffiliated customer sales:
Fluid Management	$	61,675		$	51,767		$	171,934		$	144,040
Process Solutions		57,138			62,765			164,172			176,711
Romaco		34,430			43,052			106,093			114,918
Total	$	153,243		$	157,584		$	442,199		$	435,669
Income (loss) before Interest and Taxes (“EBIT”)
Fluid Management	$	12,701		$	10,260		$	36,886		$	28,718
Process Solutions		(617	)		2,145			2,690			3,381
Romaco		(1,388	)		(1,407	)		(37,457	)		(8,359	)
Corporate and eliminations		(4,522	)		(3,307	)		(13,694	)		(10,269	)
Total	$	6,174		$	7,691		$	(11,575	)	$	13,471

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	May 31,		Aug. 31,
	2006		2005
	(In thousands)
Identifiable Assets
Fluid Management	$	225,244	$	215,176
Process Solutions		311,392		326,709
Romaco		136,256		186,464
Corporate and eliminations		5,952		11,986
Total	$	678,844	$	740,335

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Restatement of Prior Financial Information

We have restated our historical Consolidated Financial Statements for the cumulative impact of errors in income tax expense. For more information with respect to the restatement, see “Note 2” to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for our fiscal year ended August 31, 2005. We did not amend our previously filed Quarterly Reports on Form 10-Q for the restatement. Therefore the financial statements and related financial information contained in such reports should no longer be relied upon. The third quarter of fiscal 2005 results of operations in this report have been restated. Throughout “Managements Discussion and Analysis of Financial Condition and Results of Operations,” all referenced amounts for the affected prior periods and prior period comparisons reflect the balances and amounts on a restated basis.

Business Dispositions

On March 31, 2006, we completed the sale of two of our Romaco business units — Hapa and Laetus — for $31.0 million. We received cash proceeds of $26.9 million with the remaining purchase price paid into an escrow account. The amount paid into escrow serves as collateral for claims by the purchaser under the terms of the Asset and Share Purchase Agreement. We have not recognized the cash in escrow as an asset as of May 31, 2006. This will be recognized as an asset and additional gain, if any, when the final payment from escrow is determinable. The purchase price is subject to a final adjustment to reflect the net assets on March 31, 2006. Hapa designs, manufactures and sells printing systems used in the packaging of pharmaceutical products. Laetus designs, manufactures and sells packaging security systems, including bar code reading and vision inspection systems, for use in the pharmaceutical and cosmetic industries. Hapa and Laetus had combined sales of approximately $42.0 million in our fiscal year ended August 31, 2005. The sale generated a pre-tax gain of $7.5 million ($6.4 million after-tax gain, or $0.43 per diluted share). The cash proceeds were used to pay off the $12.3 million balance of our 10.00% Subordinated Notes and reduce our revolving credit loan.

Results of Operations

Overview

We are a leading designer, manufacturer and marketer of highly engineered, application-critical equipment and systems for the global energy, chemical, pharmaceutical, municipal wastewater and industrial markets. In our estimation, our principal brand names — Pfaudler^®, Moyno^®, Chemineer^®, FrymaKoruma^®, Siebler^®, and Hercules^® — hold the number one or two market share position in the niche markets they serve. We operate with three market-focused business segments: Fluid Management, Process Solutions and Romaco.

Fluid Management.Our Fluid Management business segment includes our Energy Systems, Moyno and Tarby product lines serving oil and gas exploration and recovery, wastewater treatment, chemical processing and other industrial markets. Our Energy Systems product line designs, manufactures and markets equipment and systems used in oil and gas exploration and recovery. Our equipment and systems include hydraulic drilling power sections, down-hole pumps and a broad line of ancillary equipment, such as rod guides, rod and tubing rotators, wellhead systems, pipeline closure products and valves. These products and systems are used at the wellhead and in subsurface drilling and production. Our Moyno and Tarby products are pumps that utilize progressing cavity technology to provide fluids-handling solutions for a wide range of applications involving the flow of viscous, abrasive and solid-laden slurries and sludges.

Process Solutions.Our Process Solutions business segment includes our Reactor Systems, Chemineer and Edlon product lines and is focused primarily on the chemical processing and pharmaceutical markets. Our Reactor Systems product line designs, manufacturers and markets primary processing equipment and engineered systems and we believe has the leading worldwide position in glass-lined reactors and storage vessels. Our Chemineer products are high-quality standard and customized fluid-agitation equipment and systems. Our Edlon products are customized fluoropolymer-lined fittings, vessels and accessories.

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Romaco.Our Romaco product line designs, manufacturers and markets secondary processing and packaging equipment to the pharmaceutical and cosmetics markets. The product lines include dosing, filling and packaging equipment.

We have manufacturing facilities in 15 countries and approximately 63% of our sales are international sales.

For our third quarter of fiscal 2006, ended May 31, 2006, our consolidated net sales were $153.2 million which was $4.3 million lower than the third quarter of fiscal 2005. Sales declined from the prior year quarter primarily because the prior year quarter included $10.5 million in sales for the Hapa, Laetus and Edlon Lined Pipe businesses that were sold after last year’s third quarter. For the fiscal 2006 third quarter, we recorded net loss of $0.1 million versus a net income of $0.2 million in the comparable prior year quarter.

The following tables present the components of our consolidated statement of operations and segment information for the three and nine month periods of fiscal 2006 and 2005.

	Three Months Ended						Nine months Ended
	May 31,						May 31,
	2006			2005			2006			2005
Net Sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		65.5			67.2			66.2			67.5
Gross profit		34.5			32.8			33.8			32.4
SG&A expenses		26.6			26.9			27.7			27.4
Amortization		0.4			0.4			0.4			0.4
Goodwill impairment charge		6.0			0.0			8.9			0.0
Other		(2.5	)		0.6			(0.6	)		1.5
EBIT		4.0	%		4.9	%		(2.6	)%		3.1	%

	Three Months Ended						Nine months Ended
	May 31,						May 31,
	2006			2005			2006			2005
	(In thousands, except %’s)
Segment
Fluid Management:
Sales	$	61,675		$	51,767		$	171,934		$	144,040
EBIT		12,701			10,260			36,886			28,718
EBIT %		20.6	%		19.8	%		21.5	%		19.9	%
Process Solutions:
Sales	$	57,138		$	62,765		$	164,172		$	176,711
EBIT		(617	)		2,145			2,690			3,381
EBIT %		(1.1	)%		3.4	%		1.6	%		1.9	%
Romaco:
Sales	$	34,430		$	43,052		$	106,093		$	114,918
EBIT		(1,388	)		(1,407	)		(37,457	)		(8,359	)
EBIT %		(4.0	)%		(3.3	)%		(35.3	)%		(7.3	)%

Impact of Goodwill Impairment and Restructuring Charges

Beginning with the first quarter of fiscal 2006, we are reporting realigned segments as set forth above. The new segment structure is a result of a significant reorganization of management, operations and reporting that occurred during the first quarter of fiscal 2006. The Fluid Management segment is comprised of the R&M Energy Systems, Moyno and Tarby product lines. The Process Solutions segment is comprised of the Pfaudler, Tycon Technoglass, Chemineer and Edlon product lines. The Romaco segment includes for the periods presented the Hapa and Laetus (prior to their sale) and FrymaKoruma, Noack, Siebler, Macofar, Promatic, Unipac, IPM, Zanchetta and Bosspak product lines. The Hapa and Laetus product lines were sold in March 2006.

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As a result of the segment realignment, the goodwill recorded as of August 31, 2005 was allocated to the aforementioned product lines based on their relative fair value in accordance with Statement of Financial Accounting Standard No. 142 “Goodwill and Other Intangible Assets” (“FAS 142”). The aggregate goodwill for each new segment is the sum of the reallocated goodwill for the product lines comprising the segment. In addition, during the first quarter and subsequent to the end of the first quarter, discussions about the sale of various Romaco business units progressed and provided additional information regarding the fair value of Romaco. After considering the fair value of the Romaco segment, management determined there was an indicator of goodwill impairment under the rules of FAS 142. Management estimated the fair value of the Romaco segment using current prices that the Company may receive in the potential disposition of all or parts of Romaco. Based on these estimates, management estimated that goodwill in the Romaco segment should be written down by $30.0 million. This charge was included in the first quarter earnings. A formal appraisal was completed in the third quarter to determine the final goodwill write-down. The results of the appraisal determined that goodwill should be written down by an additional $9.2 million. This charge is included in our third quarter earnings.

During fiscal 2005 we incurred costs related to a restructuring program of our Process Solutions and Romaco segments. The restructuring plan was initiated to improve the profitability of these segments in light of current worldwide economic conditions. The restructuring plan included the following:

• Plant closures (one of two Reactor Systems facilities in Italy, a Reactor Systems facility in Mexico and the Unipac facility of Romaco in Italy).

• Headcount reductions to support the Reactor Systems business reorganization and to bring the personnel costs in line with the current level of business.

• Headcount reductions at Romaco with the Unipac integration into the Macofar facility and removal of duplicate administrative costs at other locations.

The fiscal 2005 restructuring activities were as follows:

• The Unipac facility and the Reactor Systems facility in Italy were sold.

• The Reactor Systems headcount was reduced by 134.

• The Romaco headcount was reduced by 108.

The restructuring of our Romaco and Reactor Systems product lines will continue in fiscal 2006 as we continue to consolidate facilities. The consolidation of production facilities will reduce excess production capacity and redundant operating and administrative costs. We expect the fiscal 2006 restructuring costs to be approximately $8.0 million. These costs primarily relate to severance, equipment relocation and costs to exit the facilities. In addition, with the sale of the Hapa and Laetus businesses completed, we are reviewing the most cost effective methods to deliver our Romaco products to market. This review will result in additional personnel termination and facility closure costs of approximately $6.0 million to $7.0 million over the next six moths.

As a result of the restructuring activities, we recorded costs in fiscal 2005 totaling $3.6 million in the Process Solutions segment and $4.3 million in the Romaco segment. The costs in fiscal 2005 were comprised of the following:

• $5.7 million of termination benefits related to the aforementioned headcount reductions.

• $1.1 million to write-down inventory and $0.4 to write-off intangibles related to discontinued product lines. The inventory charge was included in cost of sales.

• $0.3 million to write-down to estimated net realizable value the facilities that we exited.

• $0.4 million to write down equipment to fair value, relocate equipment, relocate employees and other costs.

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The Mexico facility that was part of the restructuring program in fiscal 2005 is owned by us and will be sold. We expect that facility sale to generate approximately $6.0 million of additional pre-tax cash proceeds, which exceeds the recorded book value of this facility by approximately $5.9 million. We have negotiated a contract for the sale of the Mexico facility and expect title to the property to transfer to the buyer in August 2006. We anticipate receiving cash proceeds of $1.5 million before August 31, 2006 with the balance of the proceeds received by December 2006.

In the first nine months of fiscal 2005, the costs recorded in the Process Solutions segment were $4.2 million and the costs recorded in the Romaco segment were $3.6 million. The recorded costs in the first nine months were comprised of the following:

• $5.6 million of termination benefits related to the aforementioned headcount reductions.

• $1.0 million to write-down inventory and $0.4 million to write-off intangibles related to a discontinued product line. The inventory charge is included in cost of sales.

• $0.3 million to write-down to estimated net realizable value the Reactor Systems facility in Italy that we exited.

• $0.3 million for equipment relocation and to write down equipment to fair value.

• $0.1 million gain on the sale of the Unipac facility.

• $0.3 million of costs to prepare facilities for sale, relocate employees and other costs.

In the first nine months of fiscal 2006, the costs recorded in the Process Solutions segment were $4.6 million and the costs recorded in the Romaco segment were $2.0 million. The recorded costs in the first nine months were comprised of the following:

• $3.7 million of termination benefits related to headcount reductions primarily in Germany where we combined two operations into a single facility and removed redundant costs.

• $0.4 million to write-off inventory related to a discontinued product line. The inventory charge is included in cost of sales.

• $2.5 million for equipment relocation, costs to exit facilities and losses related to business and facility dispositions.

During the fourth quarter of fiscal 2005, we also sold the inventory and equipment related to our lined pipe and fittings product line of our Process Solutions segment to Crane, Inc. In addition, in our second quarter, we sold another underutilized facility of our Process Solutions segment. The cash proceeds received from these asset sales were $9.7 million. The loss recognized in 2005 as a result of these asset sales was $2.1 million. During the third quarter of fiscal 2006, the land and buildings in Charleston, West Virginia were sold for $1.0 million. The loss on the disposition was $1.7 million.

We incurred additional costs of $0.3 million in the first quarter of fiscal 2006 related to the sale of the lined-pipe and fittings product line. These costs were personnel and facility related costs that we incurred in connection with our obligation to provide lined-pipe and fittings manufacturing operations to Crane, Inc. during the first quarter.

In the second quarter of fiscal 2006 we recorded a $1.8 million gain (before minority interest of 24%) on the sale of land and buildings in China. We have signed a contract transferring title of the land and buildings to the buyer. The cash proceeds of $3.3 million from the sale are expected to be received within six to nine months. We have moved our production operations to a newly constructed facility. We also recorded a liability of $0.4 million for costs expected to be incurred when we exit a leased facility in the United Kingdom.

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Three months ended May 31, 2006

Net Sales

Consolidated net sales for the third quarter of fiscal 2006 were $153.2 million which were $4.3 million lower than net sales for the third quarter of fiscal 2005. Included in fiscal 2005 were sales of $10.5 million from businesses that have been sold.

The Fluid Management segment had sales of $61.7 million in the third quarter of fiscal 2006 compared with $51.8 million in the third quarter of fiscal 2005. The sales increase is from strong demand for oilfield equipment products due to high levels of oil and gas exploration and recovery activity as well as improved chemical processing and general industrial markets. Orders for this segment increased from $51.6 million in the third quarter of fiscal 2005 to $65.6 million in the third quarter of fiscal 2006. The increase in orders in this segment reflects the strong demand from the oil and gas exploration and recovery markets.

The Process Solutions segment had sales of $57.1 million in the third quarter of fiscal 2006 compared with $62.8 million in the third quarter of fiscal 2005. The decline is a result of the sale of the lined-pipe and fittings product line in August 2005 and lower Pfaudler product line sales in the U.S. and Europe to pharmaceutical customers. Incoming orders in this segment were $71.5 million in the third quarter of fiscal 2006 compared with $56.1 million in the third quarter of fiscal 2005. The increase in orders is in our Pfaudler and Chemineer product lines from the chemical market.

The Romaco segment had sales of $34.4 million in the third quarter of fiscal 2006 compared with $43.1 million in the third quarter of fiscal 2005. After considering the impact of exchange rates, the third quarter of fiscal 2006 sales were $7.8 million lower than the third quarter of fiscal 2005. The decline in sales is due to the disposition of the Hapa and Laetus businesses on March 31, 2006. Incoming orders in this segment increased to $43.8 million in the third quarter of fiscal 2006 compared with $40.0 million in the third quarter of fiscal 2005. After considering the impact of changes in exchange rates and business dispositions, the third quarter of fiscal 2006 orders increased by 27.0% compared with the third quarter of fiscal 2005. The increase in orders is for packaging equipment in emerging markets.

Earnings Before Interest and Income Taxes (EBIT)

The Company’s operating performance is evaluated using several measures. One of those measures, EBIT is income before interest and income taxes and is reconciled to net loss on our Consolidated Condensed Statement of Operations. We evaluate performance of our business segments and allocate resources based on EBIT. EBIT is not, however, a measure of performance calculated in accordance with accounting principles generally accepted in the United States and should not be considered as an alternative to net income as a measure of our operating results. EBIT is not a measure of cash available for use by management.

Consolidated EBIT for the third quarter of fiscal 2006 was $6.2 million compared with $7.7 million in the third quarter of fiscal 2005. Included in the current quarter’s EBIT is the aforementioned $7.5 million gain on the sale of the Hapa and Laetus businesses and the $9.2 million goodwill impairment charge. Also included in the current quarter’s EBIT are the $3.6 million of costs related to the restructuring and facility dispositions in our Romaco and Process Solutions segments compared with restructuring costs of $1.2 million in prior year. Our gross margin has increased in fiscal 2006 due to the sales growth in our Fluid Management segment which has higher product margins and improved utilization of our Reactor Systems and Romaco production facilities. SG&A costs have decreased due to the business dispositions and other personnel reductions offset somewhat by higher costs related to Sarbanes-Oxley compliance, expensing of stock options and higher costs to support the growing Fluid Management segment.

The Fluid Management segment had EBIT of $12.7 million in the third quarter of fiscal 2006 compared with $10.3 million in the third quarter of fiscal 2005. The increase in EBIT is due to the increase in sales volumes described above.

The Process Solutions segment had negative EBIT of $0.6 million in the third quarter of fiscal 2006 compared with $2.1 million in the third quarter of fiscal 2005. The restructuring and facility disposition costs were $3.1 million higher in the third quarter of fiscal 2006 than the comparable prior year period. In

20

addition, sales declined by $5.7 million which resulted in a decrease in EBIT of $1.0 million. Offsetting these items is the impact of our cost reduction programs and improved utilization of our production capacity due to increases in orders and backlog.

The Romaco segment had EBIT of negative $1.4 million in the third quarters of fiscal 2006 and 2005. The third quarter of fiscal 2006 includes the $7.5 million gain on the sale of businesses that was mentioned above and goodwill write-off of $9.2 million. Also included in the third quarter of fiscal 2006 EBIT are restructuring charges of $0.1 million compared with restructuring charges of $0.9 million in the third quarter of fiscal 2005. After considering the restructuring charges, gain on business dispositions and goodwill write off Romaco’s EBIT in the third quarter of fiscal 2006 is $0.9 million higher than the third quarter of fiscal 2005 while sales have declined $7.8 million on a constant currency basis. The overall improvement in the third quarter of fiscal 2006 EBIT is due to the personnel reductions that have occurred and improved utilization of our production capacity.

Interest Expense

Interest expense was $3.1 million in the third quarter of fiscal 2006 compared with $3.6 million in the third quarter of fiscal 2005. Our average debt levels were lower in fiscal 2006 because of the cash proceeds received from the sale of the Hapa and Laetus businesses.

Income Taxes

The tax expense for the three month period ended May 31, 2006, was $2.8 million on pretax income of $3.0 million. This unusual relationship exists because the goodwill impairment charge of $9.2 million is not deductible for tax purposes. Without the goodwill impairment charge, the pretax income was $12.2 million for the three month period ended May 31, 2006. The effective tax rate on this pretax income was 23.0%. The tax rate for the comparable nine month period of fiscal 2005 was 83.2%. The effective tax rate is lower than prior year due to the tax effect of the gain generated on the sale of our Hapa and Laetus businesses. The pre-tax gain on this transaction was $7,523,000 and the effective tax rate was 15.0%.

Nine months ended May 31, 2006

Net Sales

Consolidated net sales for the first nine months of fiscal 2006 were $442.2 million which were $6.5 million higher than net sales for the first nine months of fiscal 2005. We sold the lined-pipe and fitting product line of Edlon on August 31, 2005 and the Hapa and Laetus businesses on March 31, 2006. The sales from these business units included in fiscal 2005 that are not in fiscal 2006 are $14.5 million. In addition, changes in exchange rate has caused a reduction in fiscal 2006 year to date sales of $6.4 million. After considering these impacts, the fiscal 2006 year to date sales have increased by $27.4 million, or 6.3%, when compared with the first nine months of fiscal 2005. This increase is from to the Fluid Management segment.

The Fluid Management segment had sales of $171.9 million in the first nine months of fiscal 2006 compared with $144.0 million in the first nine months of fiscal 2005. The sales increase is from strong demand for oilfield equipment products due to high levels of oil and gas exploration and recovery activity as well as improved chemical processing and general industrial markets. Orders for this segment increased from $148.0 million in the first nine months of fiscal 2005 to $179.3 million in the first nine months of fiscal 2006. The increase in orders in this segment reflects the strong demand from the oil and gas exploration and recovery markets.

The Process Solutions segment had sales of $164.2 million in the first nine months of fiscal 2006 compared with $176.7 million in the first nine months of fiscal 2005. After considering the impact of exchange rates, sales declined $10.7 million. The decline is a result of the sale of the lined-pipe and fittings product line in August 2005 and lower Pfaudler product line sales in the U.S. and Europe to pharmaceutical customers. Incoming orders in this segment were $191.5 million in the first nine months of fiscal 2006 compared with $179.6 million in the first nine months of fiscal 2005. After considering the impact of exchange rates, the first nine months orders increased by $14.4 million. The increase in orders is a result of strong orders in the third quarter of fiscal 2006 from the chemical market.

21

The Romaco segment had sales of $106.1 million in the first nine months of fiscal 2006 compared with $114.9 million in the first nine months of fiscal 2005. After considering the impact of exchange rates, the first nine months of fiscal 2006 sales were $2.8 million lower than the first nine months of fiscal 2005. The disposition of the Hapa and Laetus businesses on March 31, 2006 caused a $7.0 million reduction in sales. Incoming orders in this segment decreased to $123.3 million in the first nine months of fiscal 2006 compared with $127.0 million in the first nine months of fiscal 2005. After considering the impact of exchange rates and business dispositions, orders have increased by $10.2 million in the first nine months of fiscal 2006 compared with the first nine months of fiscal 2005. The increase is from improving orders in the third quarter for packaging equipment to emerging markets.

Earnings Before Interest and Income Taxes (EBIT)

Consolidated EBIT for the first nine months of fiscal 2006 was adversely affected by a $39.2 million non-cash goodwill impairment charge. This resulted in EBIT being a negative $11.6 million in the first nine months of fiscal 2006 compared with $13.5 million in the first nine months of fiscal 2005. Included in the current nine month’s EBIT are the aforementioned goodwill impairment charge of $39.2 million and $6.6 million of costs related to the restructuring of our Romaco and Process Solutions segments compared with restructuring costs of $7.8 million in the prior year. In addition, the first nine months of fiscal 2006 EBIT includes a gain on the sale of the Hapa and Laetus businesses of $7.5 million. Our gross margin has increased in the first nine months of fiscal 2006 due to the sales growth in our Fluid Management segment which has higher product margins. SG&A costs have increased due to higher costs related to Sarbanes-Oxley compliance, expensing of stock options and higher costs to support the growing Fluid Management segment.

The Fluid Management segment had EBIT of $36.9 million in the first nine months of fiscal 2006 compared with $28.7 million in the first nine months of fiscal 2005. The increase in EBIT is due to the increase in sales volumes described above.

The Process Solutions segment had EBIT of $2.7 million in the first nine months of fiscal 2006 compared with $3.4 million in the first nine months of fiscal 2005. The restructuring costs were $0.5 million higher in the first nine months of fiscal 2006 than the comparable prior year period. In addition, sales declined by $10.7 million on a constant currency basis which resulted in a decrease in EBIT of $2.0 million. Offsetting these items was a gain of $1.8 million on the sale of land and buildings in China that were vacated when we moved our operations to a new facility. Finally, we recorded a liability of $0.4 million for costs expected to be incurred when we exit a leased facility in the United Kingdom.

The Romaco segment had EBIT of negative $37.5 million in the first nine months of fiscal 2006 compared with negative $8.4 million in the first nine months of fiscal 2005. Included in the first nine months of fiscal 2006 EBIT is a goodwill impairment charge of $39.2 million and restructuring charges of $1.9 million compared with restructuring charges of $3.6 million in the first nine months of fiscal 2005. Lastly, EBIT for the first nine months of fiscal 2006 includes a gain on the sale of the Hapa and Laetus businesses of $7.5 million After considering the goodwill impairment charge, restructuring charges, and gain on business dispositions, Romaco’s EBIT in the first nine months of fiscal 2006 is $0.9 million higher than the first nine months of fiscal 2005. The improvement in EBIT is a result of the cost reduction programs and facility consolidations.

Interest Expense

Interest expense was $10.3 million in the first nine months of fiscal 2006 and $10.8 million in the first nine months of fiscal 2005. Our average debt levels were lower in fiscal 2006 because of the cash proceeds received from the sale of the Hapa and Laetus businesses.

Income Taxes

The tax expense for the nine month period ended May 31, 2006, was $5.4 million on a pretax loss of $21.9 million. This unusual relationship exists because the goodwill impairment charge of $39.2 million is not deductible for tax purposes. Without the goodwill impairment charge, the pretax income was $17.3 million for the nine month period ended May 31, 2006. The effective tax rate on this pretax income was 31.1%. The tax rate for the comparable nine month period of fiscal 2005 was 83.2%. The effective tax rate is lower

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than prior year due to the tax effect of the gain generated on the sale of our Hapa and Laetus businesses. The pre-tax gain on this transaction was $7,523,000 and the effective tax rate was 15.0%.

Liquidity and Capital Resources

Operating Activities

In the first nine months of fiscal 2006, our cash flow provided by operations was $5.5 million compared with cash flow provided by operations of $2.4 million in the first nine months of fiscal 2005. The positive cash flow from operating activities in the first nine months is due to accounts receivable reductions and profits from operations.

We expect our fiscal 2006 operating cash flow to be adequate to fund the fiscal year 2006 operating needs, scheduled debt service, shareholder dividend requirements and planned capital expenditures of approximately $17.5 million. Our planned capital expenditures are related to information system upgrades, support of new products, cost reductions and replacement items.

Credit Agreement

On December 23, 2005, we amended our Bank Credit Agreement (“Agreement”). Refer to our Annual Report on Form 10-K for the year ended August 31, 2005 for a description of the former Agreement. The Agreement provides that we may borrow on a revolving credit basis up to a maximum of $50.0 million. All outstanding amounts under the Agreement are due and payable on November 30, 2007. Interest is variable based upon formulas tied to LIBOR or prime, at our option, and is payable at least quarterly. Indebtedness under the Agreement is secured by accounts receivable, inventory, equipment and fixtures of our U.S. subsidiaries, the pledge of the stock of our U.S. subsidiaries and the pledge of the stock of certain non-U.S. subsidiaries. Under this Agreement and other lines of credit, we have $50.0 million of unused borrowing capacity. However, due to our standby letters of credit, we could only incur additional indebtedness of $31.1 million at May 31, 2006. We had $18.9 million of standby letters of credit outstanding at May 31, 2006. These standby letters of credit are used as security for advance payments received from customers and future payments to our vendors.

Following is information regarding our long-term contractual obligations and other commitments outstanding as of May 31, 2006:

	Payments Due by Period
					Two to		Four to
Long-term contractual			One year		three		five		After five
obligations	Total		or less		years		years		years
	(In thousands)
Long-term debt	$	148,526	$	3,233	$	113,668	$	31,200	$	425
Capital lease obligations		0		0		0		0		0
Operating leases (1)		20,000		5,000		7,600		4,700		2,700
Unconditional purchase obligations		0		0		0		0		0
Total contractual cash obligations	$	168,526	$	8,233	$	121,268	$	35,900	$	3,125

(1) Operating leases are estimated as of May 31, 2006 and consist primarily of building and equipment leases.

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	Amount of Commitment Expiration Per Period
					Two to		Four to
Other commercial			One year		three		five		After five
commitments	Total		or less		years		years		years
	(In thousands)
Lines of credit	$	0	$	0	$	0	$	0	$	0
Standby letters of credit		18,894		18,894		0		0		0
Guarantees		0		0		0		0		0
Standby repurchase obligations		0		0		0		0		0
Other commercial commitments		53		53		0		0		0
Total commercial commitments	$	18,947	$	18,947	$	0	$	0	$	0

Critical Accounting Policies

In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States of America, which in many cases require us to make assumptions, estimates and judgments that affect the amounts reported. Many of these policies are straightforward. There are, however, some policies that are critical because they are important in determining the financial condition and results of operations and some may involve management judgments due to the sensitivity of the methods, assumptions and estimates necessary in determining the related income statement, asset and/or liability amounts. These policies are described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Report on Form 10-K for the year ended August 31, 2005. Other than the adoption of FASB Statement 123(R),Share Based Payments,there have been no material changes in the accounting policies followed by us during fiscal 2006.

Safe Harbor Statement

In addition to historical information, this Form 10-Q contains forward-looking statements, identified by use of words such as “expects,” “anticipates,” “estimates,” and similar expressions. These statements reflect the Company’s expectations at the time this Form 10-Q was filed. Actual events and results may differ materially from those described in the forward-looking statements. Among the factors that could cause material differences are a significant decline in capital expenditures in the specialty chemical and pharmaceutical industries, a major decline in oil and natural gas prices, foreign exchange rate fluctuations, the impacts of Sarbanes-Oxley section 404 procedures, work stoppages related to union negotiations, customer order cancellations, the ability of the Company to comply with the financial covenants and other provisions of its financing arrangements, the ability of the Company to realize the benefits of its restructuring program in its Romaco and Process Solutions Segments, including the receipt of cash proceeds from the sale of excess facilities and general economic conditions that can affect demand in the markets served by the Company. The Company undertakes no obligation to update or revise any forward-looking statement.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

In our normal operations, we have market risk exposure to foreign currency exchange rates and interest rates. There has been no significant change in our market risk exposure with respect to these items during the quarter ended May 31, 2006. For additional information see “Qualitative and Quantitative Disclosures About Market Risk” at Item 7A of our Annual Report on Form 10-K for the year ended August 31, 2005.

Item 4. Controls and Procedures

(A) Evaluation of Disclosure Controls and Procedures

Management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (Disclosure Controls) as of May 31, 2006. Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s (SEC) rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our quarterly evaluation of Disclosure Controls includes an evaluation of some components of our internal control over financial reporting, and internal control over financial reporting is also separately evaluated on an annual basis.

During the first nine months of fiscal 2006, we took steps toward remediating the identified material weaknesses relating to income tax matters and the financial statement close process discussed in detail in our Form 10-K for the year ended August 31, 2005. With regard to income tax matters, these steps included engaging additional external advisors to assist and review on a quarterly basis our income tax calculations for financial accounting purposes and to review on a contemporaneous basis transactions that involve complex tax calculations. With regard to the financial statement close process, we have initiated additional corporate reviews of inventory and employee related liabilities, implemented new accounting policies, and provided employee training. However, as of May 31, 2006 we had not yet completed the remediation of these material weaknesses. Therefore, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of that date. Our current plan anticipates the remediation of these material weaknesses prior to the end of our fiscal year.

(B) Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except as described in the preceding paragraph.

Part II— Other Information

Item 6. Exhibits

a) Exhibits – see INDEX TO EXHIBITS

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ROBBINS & MYERS, INC.
DATE: July 10, 2006	BY	/s/ Kevin J. BrownKevin J. Brown
		Vice President and Chief Financial Officer
		(Principal Financial Officer)
DATE: July 10, 2006	BY	/s/ Thomas J. SchockmanThomas J. Schockman
		Corporate Controller
		(Principal Accounting Officer)

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INDEX TO EXHIBITS

(2)	PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION
	2.1	Asset and Shares Purchase Agreement, dated February 28, 2006 among Robbins & Myers, Inc., Romaco International B.V. and Romaco Pharmatechnik GmbH and Coesia, S.p.A. was filed in the Company’s Report on Form 8-K filed March 3, 2006	(I)
(31)	RULE 13A-14(A) CERTIFICATIONS
	31.1	Rule 13a-14(a) CEO Certification	(F)
	31.2	Rule 13a-14(a) CFO Certification	(F)
(32)	SECTION 1350 CERTIFICATIONS
	32.1	Section 1350 CEO Certification	(F)
	32.2	Section 1350 CFO Certification	(F)

“F”	Filed herewith
“I”	Incorporated by reference
“M”	Indicates management contracts or compensatory agreement

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